THE ULTIMATE GUIDE TO LITHIUM INVESTING (Part 1)

Ok, here is the connection between the two; Tesla is using tons of lithium in his Megafactory to build big batteries.

“So, what?”

It’s the beginning of a new revolution; CLEAN ENERGY.

“Hey, Rudy! What all of this has to do with investment opportunities?”

“That’s is a great question Pal, and I’m excited to explain you all about this stuff.”

In today’s post, I’m sharing valuable lithium information that will help you to make an investment decision on this often-neglected market.

This is the first part of a series which I’m going to show you how I research the information, analyze and process decisions forward investing.

WHAT IS LITHIUM? Hint – Has nothing to do with Lithuania.

Technically; Lithium is a chemical with the symbol Li and atomic number 3.

“What?”

In common words; Lithium is a soft, silver-white metal which is used for the production of glass, aluminum products, and batteries.

Cool stuff! This material has a wide use, but the most significant use of lithium is in rechargeable batteries for mobile phones, laptops, digital cameras and electric vehicles.

You probably are aware of all the talk about renewable energy, electric cars and so on.

Did you notice that almost no one talk about this material?

The reasons are:

It’s boring stuff; showing the latest Tesla car is sexier than filming a mining company in Australia extracting silver-white rocks.

It’s a secret; The “big” investors don’t want us to know about it, just yet.

It’s niche market; The market is small, appealing only to sophisticated investors.

However, time to time, some news is reported from the major publications.

The Economist calls it “a precious metal”, and talks about a “global effort to secure supplies of lithium by the world’s largest battery producers.”

Goldham Sachs, calls lithium “the new gasoline”.

If you’re a visual person, here the video by Bob Koort, head of Industrials and Materials research for Goldman Sachs Research:

There are interesting points in this video which I’m going to share with you to clear the understanding of “what lithium is” and “what lithium isn’t.

LITHIUM ISN’T A SOURCE OF ENERGY

Goldham Sachs describe lithium has the new gasoline.

Well, Lithium isn’t a source of energy but a metal essential for electricity storage in Li-Bs.

Let’s be clear. People think electric cars are clean, and they are. However, the production of electricity to power EVs isn’t “green” at all.

Basically, the world relies on gas and coal to produce energy. Alternative resources such wind, water or solar aren’t yet competitive on cost.

LITHIUM IS CONCENTRATE IN FEW LOCATIONS

The extraction of lithium is dominated for 36% by Australian hard-rock production (Greenbushes), 14% by China and 48% by South American brine deposits in Argentina and Chile. I’m going to talk about in more details later.

LITHIUM ISN’T RARE

There is plenty of reserve in the world, a bit like the oil. So, don’t assume the price will go insane because of scarcity, that will never happen.

WHY IS LITHIUM THE NEXT BIG THING?

Lithium is an essential material to build these huge batteries for electric cars.

The main materials for batteries are; Lithium, Graphite and Cobalt. For the purpose of this guide, I’m going to talk only about Lithium.

In recent years, electric cars are taking the world by storm. Few month ago, Elon Musk unveiled the “Tesla 3”, accepting pre-order for a car that isn’t available until the end of 2017.

I don’t get any commission from Tesla, LOL

The result?

According to a speech from Tesla’s Vice President of Business Development, Diarmuid O’Connell, reservations for the car are now approaching 400,000.

Consumers are queuing up to get hands on a car that is costing US$35,000 and have to wait for another 2 years before drive one.

“Isn’t that incredible? ”

Only brands like Ferrari or Maserati have a waiting list. These cars are custom made, not mass produce like Tesla.

Electric cars are an innovation much-needed which will make obsolete the combustion engine cars after 100 years of service. Let’s be honest guys; current cars are just plain boring. Noisy – smelly – no tech.

A look at 2020’s Tesla plan reviled a fast trend to bring this new technology to the street:

I mean, we are just at the beginning of this technological innovation with a mere total production of 85,000 cars.

But what is happening to the price of lithium in the mean time?

Of course, all that glitters is not gold. Behind the recent spike in the lithium price might be the speculators who saw the opportunity for a quick profit. Or maybe the mining industry isn’t up to speed creating a shortage of Lithium.

There is more than green cars at Tesla. In 2017, the “Gigafactory” will produce batteries for Tesla cars and electric storages for houses.

Gigafactory for production of lithium batteries

Tesla isn’t the only company building a Gigafactory and riding the green revolution.

Data from Simon Moores of Benchmark Mineral Intelligence shows that there are several other large-scale facilities coming online in the next five years.

More lithium-ion battery megafactories means more demand for lithium. The more demand, the higher the price if miners can’t cope with increasing production fast enough.

The diffusion of Lithium-ion batteries is fueled by the technologic advancement which is reducing the cost of production by 6 percent to 9 percent with each doubling of production.

Last year, battery price fall 35% and are on a trajectory to make unsubsidized electric vehicles as affordable as their gasoline counterparts in the next six years, according to a new analysis of the electric-vehicle market by Bloomberg New Energy Finance (BNEF).

The sweet deal for you is by 2040, you’ll be able to buy an electric car for only US$22,000 (in today’s dollars), according to the projections. By then, 35% of the total cars will have a plug.

However, knowing how disruptive new technologies are and how projections are screw up in most cases, I expect by 2040 something like 70% electric cars on the road.

What make me think that?

In retrospective, most projections by “expert” were a flop.

Well, the legendary iPhone, back in 2007 had so many bearish expectations that you might wonder what is wrong with those people.

In three words; “Experts aren’t visionaries“. They based their prediction on past data.

Factors Driving Demand

Governments are been talking for decades about an unsustainable world and trying to agree on a plan to save us from self-destruction.

I went to Bejing in 2008 to experience the beauty of China culture. I love history and visit foreign countries.

One thing I didn’t expect was the terrible pollution of Bejing. In the evening, for some reasons unknown to me, a thick cap of smoke at my noise level would make difficult to breathe. It was that BAD. And it’s still bad.

China has a serious pollution problem.

China will be the driving force behind renewable energy, which required efficient energy storage. This requires rechargeable lithium-ion batteries. More solar panel on the roofs, instead of dirty coal plants.

For the same reason, car manufacturers are betting big on the electrification of vehicles, using lithium-ion batteries.

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